Economic Logic, Too

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I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Wednesday, May 12, 2010

It is a recognized problem that demographic change is bringing significant problems to pensions systems. People live longer and thus spend a larger share of their life on a pension, which costs a lot (see Greece for a spectacular example). And fewer births per capita imply that fewer working people can support the pensioners. The solutions are thus: lower benefits, increase contributions, raise retirement age, encourage fertility (and increase mortality, but that is politically not feasible).

Alessandro Cigno suggests a clever way to improve the situation that is equivalent to a combination of the above policy changes: make part of the pension benefits contingent upon having children. Clearly, this should increase fertility. However, this is a step back to the time where one would rely on one's own children for old age. Also, I am not sure the fertility incentive is ell timed. Young households are discounting heavily retirement when they make fertility choices, and contemporaneous incentives should have much more bite than some that kick in only decades later.

I thought that was rather because social security is an insurance scheme that allows people without adult children, or an insufficient number of them, to still get old-age support. And like unemployment insurance, it can only work if the government makes it mandatory. Thus, I do not view that as a lack of commitment of the government, rather as the government forcing an insurance scheme on us for the common good.